Schweitzer-Mauduit International, Inc.

SWM Details

Schweitzer-Mauduit International, Inc. (NYSE: SWM) is a diversified manufacturer of engineered solutions and materials for a wide range of industries. It operates through 1) Advanced Materials & Structures (AMS), which produces resin-based rolled goods such as nets, films, and meltblown materials, as well as bonding products and adhesive components and others, for the filtration, transportation, healthcare, construction, and industrial markets, and 2) Engineered Paper (EP), which manufactures various cigarette paper and reconstituted tobacco products (Recon) for the tobacco industry. SWM has manufacturing facilities in 39 locations globally and operates in over 90 countries.

Q2FY21 Results: The company reported a YoY surge of 48.62% in net sales to USD 377.8 million in Q2FY21 (ended June 30, 2021) from USD 254.2 million in Q2FY20. Advanced Materials and Structures segment, representing 66.70% of Q2FY21 net sales, expanded 89.76% YoY, including an 18% organic sales growth. Net income reduced to USD 1.8 million in Q2FY21 vs. USD 21.5 million in Q2FY20. As of June 30, 2021, the company had cash and cash equivalents of USD 65.9 million and total debt of USD 1.28 billion.

Robust Dividend Yield: On August 04, 2021, the company declared a quarterly dividend of USD 0.44 per common share, paid on September 24, 2021, to shareholders of record on August 20, 2021. SWM has been consistently paying dividends over the last ten years, and its current (TTM) dividend yield is 5.07%, as depicted in the chart below (every D represents a dividend payment):

Consistent Dividend Yield (Source: REFINITIV)

Key Risks: In FY20, SWM's top four customers contributed more than 28% to its net sales. Hence, the loss of such vital customers could hurt its financials. Furthermore, in FY20, sales of reconstituted tobacco leaf (RTL) accounted for a significant share of SWM's net sales. It has a single manufacturing facility in France that produces RTL and a single facility in Ancram, New York, that produces wrapper and binder goods. As a result, any interruption in the manufacturing process could harm the company's operations.

Outlook: As of H1FY21, SWM generated a Free Cash Flow (FCF) of USD 2.2 million. However, it anticipates achieving significantly higher FCF in H2FY21. FVE also forecasts the continuation of demand momentum in H2FY21, allowing for higher product pricing to relieve inflationary pressures.

Valuation Methodology: EV / EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

SWM Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: SWM's stock price decreased 25.21% in the past six months and is currently leaning towards the lower band of its 52-week range of USD 28.71 to USD 50.79. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 50.22. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 42.43. Considering the correction in the stock price, strong topline performance, robust dividend yield and associated risks, we recommend a "Speculative Buy" rating on the stock at the current price of USD 35.93, up 3.57% as of September 27, 2021, 1:58 PM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Five Star Senior Living Inc.

FVE Details

Five Star Senior Living Inc. (NASDAQ: FVE) provides senior living and rehabilitation, and wellness services in the US. It operates through 1) Senior Living, providing Independent Living Communities (ILs), Assisted Living Communities (ALs), Continued Care Retirement Communities (CCRCs), and Skilled Nursing Facilities (SNFs), and 2) Rehabilitation and Wellness (R&W) services, offering physical, occupational, inpatient and outpatient clinics as well as fitness services. As of June 30, 2021, it operated 252 senior living communities across 31 states with 27,733 living units, ten inpatient and 218 outpatient R&W clinics.

Updates on the Strategic Repositioning Plan: On April 09, 2021, FVE announced a new strategic plan to reposition its Senior Living management business by focusing on larger IL and AL senior living communities, as well as stand-alone active adult communities. Subsequently, on June 09, 2021, FVE modified its management arrangements with Diversified Healthcare Trust (DHC). As of June 30, 2021, it had closed 1,473 of ~1,500 SNF living units in 26 of the 27 CCRCs and initiated the repositioning process of these SNF living units. It had also closed 27 out of 37 Ageility inpatient rehabilitation clinics planned for closure. As of September 13, 2021, FVE completed 62 of the 108 planned transitions to third-party operators and stated that it anticipates finishing the transition of the remaining communities by FY21 end.

Q2FY21 Results: The company reported a 9.28% decline in the total revenue to USD 258.62 million in Q2FY21 (ended June 30, 2021) from USD 285.08 million in Q2FY20. It reported a net loss of USD 12.30 million in Q2FY21 vs. a net income of USD 3.00 million in Q2FY20. As of June 30, 2021, the company had cash & cash equivalents (including short-term investments) of USD 118.71 million and total debt of USD 11.31 million.

Key Risks: Most of FVE's senior living communities are concentrated in Florida, North and South Carolina, Georgia, Texas, and Indiana. As a result, overdependence on specific geographies could negatively impact its financial health in the long run. In addition, FVE relies on its relationship with DHC significantly. As of June 30, 2021, DHC owned 228 of the 252 senior living communities operated by FVE. Thus, any discord with DHC could adversely impact the company's operations.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation 

 (Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

FVE Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: FVE's stock price has declined 25.13% in the past three months and is currently leaning towards the lower end of its 52-week range of USD 3.80 to USD 9.25.  The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 52.24. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 5.48. Considering the significant correction in the stock price in the past three months, progress in the strategic repositioning plan, decent balance sheet, and associated risks, we recommend a "Hold" rating on the stock at the current price of USD 4.41, down 2.65% as of September 27, 2021, 10:51 AM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.